The U.S. Supreme Court
said yesterday it will decide whether a state program that uses interest on
funds held short-term in lawyers’ trust accounts to fund legal assistance for
the poor violates the Fifth Amendment ban on taking property without “just
compensation.”

In a brief order, the
court granted review of a 7-4 en banc decision by the Ninth U.S. Circuit Court
of Appeals upholding Washington state’s Interest on
Lawyers Trust Account program, which is similar to those operating in California and other states.

The Ninth Circuit ruled
last November that the program serves attorneys’ ethical obligations to
segregate client funds from their own accounts and to ensure access to the
legal system.

A three-judge panel had
ruled the previous January that IOLTA violated the Takings Clause. But the en
banc majority, in an opinion by Judge Kim M. Wardlaw, reasoned that because the
money that goes to funding legal services wouldn’t go to the client if IOLTA
didn’t exist, but would go to the bank, the state owes the clients nothing in
“compensation.”

Harold Johnson, a Sacramento attorney who filed an
amicus brief on behalf of Pacific Legal Foundation, said the high court was
right to take the case.

“There may be ambiguity
and disagreement about various points of property- rights law, but one
constitutional principle is crystal clear: Government cannot seize private
property without reimbursing the owner,” Johnson said in a statement. “The
interest generated by a client’s money in a lawyer’s trust account is the
client’s property. Through IOLTA programs, government lays hands on that
property while ignoring the Constitutional mandate to make the property owner
whole.”

If legal aid programs
are a good idea, Johnson suggested, they should be funded by “taxpayers as a
whole, not merely from people single out because they have dealings with a
lawyer.”

State Bar of California
officials, who praised the Ninth Circuit ruling when it was issued, could not
be reached yesterday for comment.

IOLTA programs raise
about $140 million for legal services nationwide.

Conflicting Decisions

The Ninth Circuit
disagreed with the earlier decision of the Fifth Circuit, which said that IOLTA
violates the Fifth Amendment. The foundation that oversees IOLTA spending in Texas had asked for rehearing
in that case, but the full Fifth Circuit denied it last week.

Wardlaw said the
Washington IOLTA program doesn’t violate the Supreme Court’s decision in Phillips
v. Washington Legal Foundation, 524 U.S. 156 (1998). A 5-4 majority in that
case held that Texas had taken clients’
money, but remanded for reconsideration of what “just compensation” would be.

The answer to that
question, Wardlaw said, is nothing.

In the absence of
IOLTA, the judge explained, the plaintiff clients “at most would have had the
right to keep their principal from earning interest.” That right cannot be
enforced under the Takings Clause, Wardlaw said, because it “has no economic
value.”

Kozinski, dissenting,
said the decision “will doubtless be greeted with a rousing cheer by government
officials who will eagerly look to bank accounts and other places where money
is kept, with an eye to snatching a few dollars here and there.” Clients whose
money is taken for IOLTA, the dissenters said, might want those funds used for
some other charitable purpose.